Can a real estate professional contribute to a roth ira?

A Roth IRA can be a good way to start with a retirement account early in your real estate career. While this means you can't now save money on your taxes with a Roth IRA, your deductions won't be taxed when you're ready to withdraw the money. Similarly, real estate agents who own small businesses have the option of opening an SEP, allowing for higher annual contribution limits than a traditional IRA or a Roth IRA and saving more than an individual investor. Because your IRA doesn't pay taxes, you can't take advantage of the deductions that come with owning real estate.

Self-directed IRAs allow you to take advantage of alternative investments, such as real estate, private equity, precious metals and other types of investments that are not normally allowed in most financial institutions. Unless you have the time and experience to manage real estate, you're probably better off using more conventional strategies for your IRA. Rental income is considered passive, and contributions to traditional and Roth IRAs must come from active income or workers' compensation. A huge risk are maintenance costs, which can drain your IRA's cash and cause costly fines if you contribute too much to the account to cover them.

A self-directed IRA is independent of any brokerage agency, bank, or investment company that makes the decisions for you (most brokerage accounts don't allow holding real estate, anyway). Not only can the value of properties fall rather than rise, but a year of significant maintenance costs could also impose penalties if your income limit and IRA contribution don't cover repairs you can't afford to ignore. Real estate can provide a steady stream of income from rents, and any rental income you collect grows tax-free within the IRA. In traditional IRAs, the individual contributes to their own account, but with an SEP IRA, the company contributes on behalf of the employee.

Self-directed IRAs provide real estate agents with the perfect opportunity to leverage what they already know about the real estate business to plan for a future of financial freedom during retirement. You don't have to pay taxes on profits until they're distributed (tax-deferred) or, if you have a Roth IRA. Or, if you file a joint return with your spouse and your spouse has earned income, you can each contribute to your own IRAs long as your spouse earns enough income to cover each of your contributions.